Description of problem:
KDE applications fail to discover the web proxy on my work network through WPAD auto-discovery. The network provides the configuration information via both DHCP and "wpad" DNS CNAMES. Auto-discovery works for Firefox on all platforms, KDE 3 and Internet Explorer on Windows on the same network.
I believe that there may be an actual code bug in the KDE DNS proxy discovery, but the failure of the DHCP discovery seems to be a packaging issue /usr/libexec/kde4/kpac_dhcp_helper needs to be set-uid root and it isn't the equivalent kdelibs3 binary (/usr/bin/kpac_dhcp_helper) is set-uid root.
I don't have access to the network to test today, but I have checked with wireshark that no DHCP request is made unless I "chmod u+s /usr/libexec/kde4/kpac_dhcp_helper"
Version-Release number of selected component (if applicable):
kdelibs-4.4.2-4.fc13.x86_64
How reproducible:
Always
Steps to Reproduce:
1. Configure the proxy settings to automatically discover
2. Start a KDE session
3. Launch konqueror & request a web page
Actual results:
A notification "Could not find a usable proxy configuration script" is displayed, the web request fails.
Expected results:
The proxy should be discovered and used.
Additional info:

I tested this on my work network and even with /usr/libexec/kde4/kpac_dhcp_helper set-uid root proxy discovery still doesn't work.
The problem now seems to be that kpac_dhcp_helper sends a DHCPINFORM request with a client IP of 127.0.0.1, which is ignored by the DHCP server as it isn't on the DHCP subnet (I believe that this is expected behaviour for DHCP).
I had a look at the kpac_dhcp_helper code and it does a gethostname() followed by a gethostbyname() to find the address to use, but the problem is that NetworkManager inserts an entry for the system's hostname into /etc/hosts as 127.0.0.1 (I confirmed that it was NetworkManager by deleting the entry and adding an auditctl rule).
I'm not sure sure whether this is a kpac_dhcp_helper problem, or a NetworkManager problem though.

I've done some more investigation and I believe that NetworkManager is probably doing the wrong thing with /etc/hosts, I've filed an upstream bug here:
https://bugzilla.gnome.org/show_bug.cgi?id=619931
I've also tracked down why the DNS based discovery doesn't work, which is due to a bug in Qt 4's URL parsing, I've opened an upstream bug for that here:
http://bugreports.qt.nokia.com/browse/QTBUG-10972
Overall I believe the only fedora specific issue is the set-uid root permission on kpac_dhcp_helper, but without the above two bugs being dealt with proxy discovery isn't going to work for most people regardless.

Thanks!
Fwiw, the permissions of the helper was fixed in kdelibs-4.4.3-5
%changelog
* Sun May 16 2010 Rex Dieter <rdieter@fedoraproject.org> 6:4.4.3-5
- Web proxy auto-discovery (WPAD) fails (#592658)
(which unfortunately didn't get included in our last 4.4.3 updates push)
I'll put it into our unofficial kde-redhat -testing repo, and will make sure to include it when the next batch of updates are queue'd.

Suggestion: kpac_dhcp_helper should look up the default route, get the device that the default route uses, then get that device's IP addresses. Or it could use NetworkManager via D-Bus if NM is running.
If it continues to rely on looking up the hostname it'll fail in a large number of cases where for example your hostname is 'localhost.localdomain' or 'localhost' which is the default on Fedora. So this is something NM can help out, but kpac_dhcp_helper is still being pretty simplistic about getting the IP address.

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